35% On-Time Payments

For over 10 years now, I have had the privilege of making thousands of dollars from credit card bonuses and rewards without paying a dime as interest. Truly, I can honestly say that sign-up bonuses have never been larger than today. I used to have a rule: to apply in exchange for a minimum of $100. Now, cards with bonuses of $500 have been around for quite some time. I even used them to pay for all my holiday shopping.E

What constitutes a greater part of your score is your record of prompt payment. No surprise there. The thing with paying your own bills is, chances are you’d continue to pay bills. Even though a late payment of 30 days or worse is likely to come up here, being 60 or 90 days late on a payment is far worse. When you narrowly miss a due date and payoff within a 30-day period, it’s highly unlikely for it to even show up here. When it comes to opening or closing credit cards, this has no effect at all.

30% Capacity Used

This is also known as utilization ratio and has to do with how much you use out of your available credit. In this case, it is much better for the ratio to be as low as possible. It is definitely not a good idea to exceed the limit on all your cards. Utilization ratio can be tracked in two ways, either the overall level or the per card level. Let’s say a person has five different cards with each card having a balance of $1,000 and $10,000 credit balance on each card as well, that is, 10% ratio × 5 cards, it is much better than having 5 cards but with zero balance on 4 of the cards and $5,000 balance on just one card, that is, 50% ratio on 2 card.

15% Length of Credit History

The ages of your accounts, that of your oldest account and the average of all your accounts, are tracked. Therefore, it is usually better to have a long credit history and opening new credit lines on a regular basis would definitely not do your credit score any good. Also, owning quite a number of older cards tends to hold down the age of your average account. For instance, if a person has 20 cards with an average age of 8 years, the addition of a new credit card would not affect the average in the least bit. I’ve come to learn, quite recently, that when you close a credit card, it does not affect the average age of your accounts or even the length of your credit history in any way. Your credit report would reflect the closed account for 10 years.

10% Types of Credit Used

This happens to be one of the lesser factors and this involves the blend of different credit accounts such as revolving credit like credit cards, retail accounts (store cards), installment loans such as auto loans and mortgages on homes. It pays to have an even greater blend. But, it does not mean that you must have all these types before to have a good credit score. Personally, I have maintained an excellent credit score without having a mortgage, auto loan or score card on my credit report.

10% past Credit Applications

Even though this is the part that gets people worried, it only carries a 10% weight. However, it happens to be quite important because applying for a lot of credit within a short time spells trouble financially. As a result, one must be extremely careful with “hard” credit inquiries. Also known as “pulls”, hard credit inquiries usually come from loan applications, which translate to requesting more credit. “Soft” credit inquiries usually occur when you personally check your credit score or when financial companies carry out a check on your credit history to verify identity or offers with pre-approval. In this case, you did not request it.

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